Consider a risk-free coupon-paying bond with a maturity of 4 years, annual coupon payments, coupon rate of 5%, face value of $100, and yield-to-maturity (YTM) of 4%.

1.What is the price of the bond?

b. What is the Macaulay duration of the bond

c. Consider an equivalent corporate bond, currently being priced with a 2% credit spread above the risk-free bond detailed previously. What is the price of the corporate bond?

d.Suppose an investor buys and holds either one of these bonds for 3 years, how many dollars of interest income would this investor receive over that 3 year period?

Please briefly explain what you would expect to happen to the price differential between the corporate and risk-free bonds in the event the economy were to enter into a recession and support your claim.